Aug. 17 (Bloomberg) -- Stryker Corp., a maker of artificial
hips and knees, is in advanced talks to buy Boston Scientific
Corp.’s pain-management device unit for about $1.5 billion, said
three people with knowledge of the transaction.

An agreement for the business, also called the
neuromodulation unit, may be announced next week, said the
people, who declined to be identified because the talks are
private. Stryker would probably pay all cash, and the deal may
be valued at $1.4 billion to $1.5 billion, the people said.

The division is one of two businesses Boston Scientific put
up for sale earlier this year. This unit would complement a
range of devices Stryker sells to pain management specialists
for back problems, said William Plovanic, an analyst with
Cannacord Genuity in Evanston, Illinois.

“This is a transaction that makes sense,” Plovanic said
today in a telephone interview. “It will help Stryker leverage
its distribution channels. And the neuromodulation business is
at least as profitable, if not more so, than Stryker’s overall
business.”

A final agreement hasn’t been reached, said the people with
knowledge of the deal, noting that talks are frequently scuttled
in the late stages.

Boston Scientific, based in Natick, Massachusetts, jumped
33 cents, or 6 percent, to $5.80 at 4:15 p.m. in New York Stock
Exchange composite trading, the biggest single-day rise in more
than 16 months. Stryker, based in Kalamazoo, Michigan, increased
20 cents, or less than 1 percent, to $46.69.

Second Unit

Boston Scientific is also seeking a buyer for its
neurovascular products, which prevent strokes. A deal for that
second unit is several weeks away and the business may sell for
about $1 billion, the people said.

Stryker’s preferred use for its cash is for acquisitions,
Chief Financial Officer Curt Hartman said on a July 20
conference call. The company said Aug. 9 that it obtained a $1
billion senior unsecured credit line, due in August 2013, to
replace a previously outstanding $1 billion credit security due
in November.

During the last five years, Stryker announced the
completion of six acquisitions, with an average size of $164.9
million, according to Bloomberg data. The largest transaction
was the $525 million purchase last year of Ascent Healthcare
Solutions Inc., a medical device recycling company.

Company Turnaround

Boston Scientific Chief Executive Officer Raymond Elliott
has been trying to turn around the company as growth in its
biggest markets -- cardiac stents used to prop open clogged
arteries and devices to treat irregular heartbeats -- have had
little or no growth.

That effort suffered a setback this year after a monthlong
recall of its implanted heart defibrillators forced the company
to write off $1.8 billion.

“They have to do everything they can to optimize growth
for the long run,” Frederick Wise, a New York-based analyst at
Leerink Swann & Co., said in an Aug. 5 telephone interview. “So
why not thoughtfully prune the current portfolio and double down
in areas where you have the most confidence of your
opportunities.”

Job Reductions

Elliott has moved to diversify the company’s product
portfolio, to cut expenses in a restructuring that will save up
to $250 million and to refinance debt acquired in its 2006
purchase of Guidant Corp. The company said Feb. 10 that it was
cutting as many as 1,300 jobs, or about 10 percent of its non-manufacturing workers.

With sales of $285 million in 2009, the neuromodulation
business makes products that use electrical pulses to stimulate
the spinal cord to treat chronic pain. While the unit had been
one of the company’s fastest-growing, sales of $72 million for
the second quarter ended June 10 were unchanged from the same
period a year earlier.

At a price of $1.5 billion, Stryker would be paying about
five times revenue for the pain-management unit, a price that
“makes sense,” Plovanic said.

Boston Scientific’s neurovascular unit may fetch as much as
$900 million, Derrick Sung, a New York-based analyst with
Sanford C. Bernstein in New York, said in an Aug. 4 e-mail.

The neurovascular unit had sales of $348 million in 2009, a
24 percent decrease from $455 million the prior year. The unit
makes tiny coils and other surgical devices used in stroke
prevention and to treat bleeding disorders in the brain.